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As we are all aware, oil prices recently hit $100 per barrel.  The 3Jan2008 WSJ Article identifies a significant change in the global economic situation as a factor behind oil prices.  According to the notes in the chart , earlier oil price spikes were associated largely with “managed” reduction of supply, thereby increasing demand resulting in higher prices paid by buyers. 

 

Contrary to the past, increased global demand and higher oil prices results in a situation today and in the future where producers have less control over prices or ability to throttle supply..  At the same time, global unrest through terror, disasters, pandemic threat and civil disturbances has become a greater factor in the uncertainty of supply, hence a greater impact on the price of oil. 

 

Although the need to manage this market uncertainty falls upon government, the solution cannot be achieved through unilateral action.  Government-owned oil companies such as Saudi Aramco, or governments such as Nigeria, hosting large Foreign Interests in oil, with mutual support through partners in the Oil Bearing Communities, can play an increasingly important role in the stability of oil.  By creating greater transparency in transactions and management of activities the security of the supply, and hence the stability of oil prices will increase.

 

Furthermore, increased collaboration and transparency between organizations will increase response and improve resiliency after natural or manmade disasters.  Through this transparency, the market will perceive a reduced overall risk in the oil supply chain.  The result will be reduced volatility, and reduction of risks associated with the “unknown unknowns” and thereby increasing the ability for the public to maintain security through enhanced social and economic prosperity.

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